EA's Eric Brown on new platforms and digital versus physical

[On 3D gaming]

"The boxes can push 3d-enabled graphics out, but you need an install base. The limiting factor is likely to be flat panels, but I think over time, as it is with almost all consumer electronics, that premium for that feature is going to be rapidly reduced in price. If it started out as $500, it'll be $50 in a couple of seasons. I think in the end you're going to find those two consoles able to do that, but in the near future they're going to be more effective in community, because the flat panels are limited on the 3D display. And also, even if the flat panels are there, it's not clear what form of 3D display technology will prevail. There are basically three different competing formats that require anything from relatively inexpensive red/blue cheap eyewear to $50-plus active shutter technologies, so we have to sort that out before we can conclude that we've got that utilisation of 3D technology by the consoles."

[On spending $1bn R&D annually]

"More than half, but not three quarters, would go into traditional consoles. We're the number one publisher in PC games, so we produce a lot of PC SKUs; The Sims is a great example there. We're investing as you know in the PC-based Star Wars MMO and we have an industry leading position in mobile games. So we've got a fair amount of resources orientated on platforms other than Nintendo, Sony and Microsoft.

Social network gaming is early stage, less than three years old – it's half a billion plus to perhaps three quarters of a billion right now. Rough estimate. It's a sub-billion dollar market growing pretty rapidly, so it's small relative to the traditional packaged goods market in North America."

[On the importance of EA's iPhone business]

"iPhone gaming is - Apple doesn't publish any aggregate statistics, but I can tell you that our mobile games business all-in is between $200 and 225 million. It's the most rapidly growing portion of our mobile business is smartphones; not only in games, but just in applications, period. So we feel good about our position. But what's happening in mobile is, I suspect it'll be a temporal change, as the iPhone is ramping up the feature phone market is ramping down – it's like going through a PS2 to PS3 transition. And I think the next big positive wave to push big growth in mobile will be the deployment of an App Store equivalent for the Android operating system.

We think long-term, as does IDC, that the Android operating system is going to take a share. Last June quarter, there were more Android-powered units shipped than iOS for the first time. IDC thinks that in 2014 it'll be a 25 to 12 per cent share, Android versus Apple devices. So I think that there's a lot to happen in the future in Android, and we're trying to position our mobile business to take advantage of that."

[On recent acquisitions]

"The most significant one in the last two years has been PlayFish last November. We paid 275 for the business pre-earn out, which is based on a variety of financial measures. The acquisition there was about getting into the social gaming space. So it's a brand new platform for EA, as I mentioned it's a half a billion dollar-plus industry, rapid growth rates. How's the business doing? It's tracking well through our first quarter, it met our internal expectations through Q1. Some of the challenges in this space are the changes in the notification requirements for all games and applications. That brought across the board monthly active users down in the overall category. We actually took share as a result, but it definitely slowed things down a bit there. By the way, we're working with Facebook to ensure games get the appropriate prominence without needlessly spamming the userbase. There's ongoing work there. That acquisition I would say it's too early to render a post-audit opinion on it – it's not even a year in. Part of our strategy going in was not just to get a development team that could produce original IP for the social network space, but to take the big EA brands that were developed on PC or console and bring them into a social network. We've already launched FIFA and Madden into the social network space, two of our biggest brands, less than a year into the acquisition are now up and available for monetisation. So we're pleased with having achieved that. "

[On Facebook Credits]

"The benefit mid to long term for any publisher is that if it becomes very easy to acquire the credits and deploy them with one or two mouse clicks, what's going to happen is you're going to see more digital transactions overall. Right now this is still very early stage; we're in discussion with them, we have our opinions on what would be positive or negative about how to roll out a common currency. It has the opportunity to be good not just for Facebook but for the publisher just by increasing the transaction velocity of digital goods. Final point I would make is that the usage activity on Facebook is playing games. Games are definitely going to get fair treatment by Facebook. There's definitely an opportunity for a win-win here, and I think that's what all parties are looking for."

[On the importance of international markets] "International sales, bit less than 50 per cent. FX [foreign exchange] exposure we look at it at a couple of different levels – there's revenue exposure and there's net income exposure. We have revenue exposure to the Euro and to the Pound, the Euro obviously being the larger of those two. What's interesting about the bottom line exposure for us is that we have a lot of costs de-nominated in Euro, so if we look at a full growing 12 month basis, if the Euro moves up or down, because our costs are well-meshed with revenue and gross profit, the bottom line EPS exposure is pretty minimal.

The only question is if you have a big FX wing and a revenue quarter like the holiday quarter, we have more revenue than we have expenses. And so there be a bit of net exposure there. But otherwise on a full-year basis we don't worry about [the Euro] from an EPS perspective. The British pound, we have more bottom line exposure because we've got revenue and little GDP cost to offset it, so we watch that closely. On the expense side we have a large studio presence in Canada specifically – Vancouver, Montreal, 1500 people working up there. So we have operating expense exposure, but it's the inverse.

A stronger CAD works against us, a strong USD is beneficial in that regard. We've talked about FX before and we've updated our exposure, giving assumptive rates as well as spot rates. We think that fiscal Q3 is our most important quarter, on a full-year basis the Euro is not something that would affect EPS – it's more the Pound and the CAD."

[On the revenue split with GameStop for the Online Pass]

"The split is, we're basically netting what we'd expect selling a product at retail and so they're getting their fair retail margin share. The thing about digital content is we're the unique and sole source provider, no-one else can sell DLC for our products. There's a little more control on our part in terms of how the DLC is developed and distributed. So I think that again this is the first year that anyone in the industry has rolled out the equivalent of an EA online sports pass programme. The price is $10, seems to be gaining user acceptance – the acquisitions, the take rates are quite high, well north of 60 per cent on the titles we've seen so far. This will evolve over time. There's no playbook to follow, this is still new to everyone.

We'll have to see what happens after this year, reassess and go from there. But the point I would make is that the DLC offering for a packaged good can be fairly complex. The consumer walking into a store will generally want to know what's available. There'll generally be half a dozen different pieces of DLC available for a title, and GameStop's in a really good position to explain to the customer what the DLC is, what pack number one and five and four and six provides, because they have a staffing model and a customer service model geared exclusively to games. And so we view them as a very important current and future market partner for all forms of DLC."